Cyprus becomes fifth eurozone bailout

Eurozone leaders and the IMF have announced an unprecedented levy on all deposits in Cypriot banks as the sting in the tail of a 10-billion-euro bailout for the near-bankrupt government in Nicosia.

Intended to apply to everyone from pensioners to Russian oligarchs alleged to have billions stashed away in what officials say is a bloated Cypriot banking sector, the "stability levy" immediately raised a flood of concerns among finance experts over a possible bank run in bigger eurozone economies, where fragile public finances are also under scrutiny.

Dutch Finance Minister Jeroen Dijsselbloem, after chairing some 10 hours of talks to strike the deal with counterparts including International Monetary Fund head Christine Lagarde and the European Central Bank's Mario Draghi, said the "upfront, one-off" tax is expected to raise 5.8 billion euros on top of the loans still to be finalised by eurozone parliaments.

The levy will see deposits of more than 100,000 euros in Cypriot banks hit with a 9.9 percent charge when lenders re-open their doors on Tuesday after a scheduled bank holiday on Monday. Under that threshold and the levy drops to 6.75 percent.

Top ECB official Joerg Assmussen said the only way to drive down what was originally requested as a 17-billion-euro rescue was to claw back money from the Cypriot banking sector, which is estimated to hold assets worth five times the country's economic output.

"In order to have burden-sharing, you extend the tax base," Asmussen said. "To residents and also to non-residents."

Lagarde said she would recommend that the IMF board now agree to chip in what one diplomat said could amount to another billion euros ($1.3 billion) in loans.

Lagarde said "the exact amount is not yet specified and will take a little bit of time" to arrive at.

Officials including the EU's economy and euro commissioner Olli Rehn also cited "positive" parallel talks with Russia on possibly easier terms on a 2.5-billion-euros loan it gave to the Cypriot government.

Cyprus Finance Minister Michalis Sarris will reportedly fly to Moscow for talks Monday about extending that loan, due to be repaid in 2016.

Under the deal, the Cyprus government will also have to hike corporate tax to 12.5 percent from 10 percent and sell off state assets so as to help balance the public finances.

"As it is a contribution to the financial stability of Cyprus, it seems 'just' to ask a contribution of all deposit-holders" to the rescue, Dijsselbloem said.

"The challenges we were facing in Cyprus were of an exceptional nature," the Dutchman said, under tough questioning from journalists at a press conference after the meeting in Brussels.

"We did what we had to," said French Finance Minister Pierre Moscovici on exiting the talks.

"It's something that compared to other possible outcomes, is the least onerous," said finance minister Sarris,

This arrangement notably meant his government "avoided salary and pension cuts" for public sector workers, he said.

Cyprus accounts for just 0.2 percent of the combined eurozone economy but officials said it had to be bailed out to safeguard the principle that no eurozone state could be allowed to default and so compromise the credibility and integrity of the single currency.

A "withholding tax" will also be imposed at source on interest earned in Cypriot banks in a further hit.

The talks had dragged on as the Cypriot government fought its ultimately doomed battle to avoid a "bail-in" or haircut, which it argued would trigger a run on its banks and ricochet on through the wider eurozone financial system.

Cyprus President Nikos Anastasiades attended the talks.

The Cyprus price tag is very small compared with two rescues for Greece worth some 380 billion euros ($496 billion), Ireland's 85 billion euros, Portugal's 78 billion and 41 billion for Spanish banks.

Russians are among the biggest investors in Cyprus, and hardline lenders like Germany had pressed for months for a clampdown on banks' alleged involvement in money laundering.

The total annual output of the Cypriot economy is 17 billion euros, and the IMF was concerned that a bailout on that level would take the country's debt burden to unsustainable levels.

CYPRUS BECOMES FIFTH EUROZONE BAILOUT

Eurozone finance ministers agreed early Saturday on a bailout for Cyprus, the fifth international rescue package in three years of the debt crisis.

After Greece, Ireland and Portugal each secured massive bailouts, Spain proved a special case as Madrid sought limited help only for its stricken banks, insisting that it did not need and would not seek a full debt bailout.

Here are the details of the rescue deals, beginning with Greece, the epicentre of the debt crisis.

GREECE

Greece got two bailouts -- a first for 110 billion euros in 2010 and then another in 2012 worth 270 billion euros in rescue funding and an unprecedented private sector debt write-down.

The two programmes included draconian austerity measures -- across the board government spending cuts, increased taxes, reductions in civil service numbers, among others.

The International Monetary Fund, the European Commission and the European Central Bank oversee the programmes, monitoring compliance by Athens.

The regular Troika reviews have proved difficult at times, with aid payments sometimes held up as a result.

The bailouts are hugely unpopular in Greece where the austerity drive is widely blamed for soaring unemployment and pushing the economy deep into recession.

IRELAND

The 'Celtic Tiger' paid for the excesses of its boom years when over-extended banks had to be rescued in 2010, nearly bankrupting the country in the process.

The government tried to keep the banking sector afloat but the amounts involved were so great it had no option but to seek help from the IMF and EU. The bailout came to 85 billion euros, accompanied by similar austerity measures to those applied to Greece.

Ireland has done better however in meeting its bailout targets, despite a sharp economic downturn, and has gradually returned to the money markets to raise funding as its borrowing costs have fallen.

PORTUGAL

Portugal was forced into the arms of the IMF and EU in May 2011, requiring a debt rescue of 78 billion euros after Lisbon's strained public finances saw it unable to raise fresh finance. Portugal is seen to have done well, like Ireland, mostly meeting its bailout programme targets.

But Portugal on Friday won an extra year from its creditors to bring down its public deficit in line with EU targets.

SPAIN

In June 2012, Spain looked as if it too would need a rescue as the collapse of its banking system, largely down to a burst property bubble, forced the government into a corner. Madrid however insisted that it was able to get by without a full rescue, seeking instead a credit line of 100 billion euros to help the banks.

In the event, the government used only some 41 billion euros of the available finance as the market pressure eased and its borrowing costs fell too.

CYPRUS

Cyprus, whose banks were badly exposed to their failed peers in Greece, sought a bailout in June 2012 but negotiations proved difficult, with the country hoping at one stage to get help from Russia.

A new conservative government elected in February brought a sense of urgency to the talks, leading to the accord after more than 10 hours of talks on Friday that continued into the early hours Saturday.

The negotiations turned on the amount involved, initially put at about 17 billion euros or equal to the total annual output of the economy.

A bailout that size however would have increased the country's debt burden to unsustainable levels so the negotiations, which also involved the International Monetary Fund, fixed the total at a maximum 10 billion euros.

The balance is to be made up mostly by an unprecedented one-off levy on bank deposits to raise 5.8 billion euros, described as a widening of the tax base, despite Nicosia having bluntly previously rejected a plan for a 'haircut' on bank accounts.

A key sticking point for hardline lenders like Germany has been the island's Russian connections, with its banks allegedly involved in money laundering, and that issue too was addressed in the accord.